The decisions were aimed at preventing the currency area's fourth largest economy, mired in a worsening recession, from needing a full state bailout which would stretch the limits of Europe's rescue fund and plunge it deeper into a debt crisis.

"We have reached as far as Spain is concerned a political understanding on the draft memorandum of understanding on the financial sector conditionality for Spain and discussed the key parameters of the EFSF financial assistance facility agreement," head of Eurogroup Jean-Claude Juncker told a news conference after a nine-hour meeting.

"We endorsed the extension of the deadline for the correction of the excessive defect for Spain by one year to 2014. This was based on the positive assessment by the commission on effective action taken and the significantly worsening economic situation in Spain and its impact on the budgeting situation. We expect Spain to take all necessary measures to meet the new 2014 deadline," he added.

A final loan agreement will be signed on or around July 20, Mr Juncker said.